Less Than Dynamic

NEW YORK At the second annual Advertising in Games Forum in New York last year, Mitch Davis, then CEO of in-game ad vendor Massive Inc., proclaimed videogame advertising had “passed the tipping point.” He predicted that the space—which rang up $70 million to $80 million per year at the time—would swell to an impressive $2 billion by the end of the decade.

Among the game developers, ad execs and analysts gathered there, the excitement was palpable. The advent of dynamic in-game ad-insertion technology, enabling Massive and others to serve “live” ads into games such as Ubisoft’s Splinter Cell and Atari’s Test Drive Unlimited, promised to transform the business. The optimism only grew two weeks after the confab, when monstrous Microsoft snapped up Massive.

Fast forward to the present, and things are looking a little less “dynamic.” Microsoft has been conspicuously quiet about its plans for Massive. A third Advertising in Games Forum has yet to materialize. And analysts have dramatically scaled back their expectations for the medium overall—and dynamic ads, in particular—even as they talk up opportunities in casual, or Web-based, games.

Mike Goodman, analyst at The Yankee Group, projects the worldwide market for in-game ads will hit $971.3 million by 2011—nothing to sneeze at, but a far cry from the $2 billion tossed around last year by Davis, who, along with Massive’s Nicholas Longano, left the company earlier this year to start up game producer Brash Entertainment.

Recently, the big three players in the gaming space—Massive, IGA Worldwide and Double Fusion—teamed with research firms including Nielsen Entertainment (which, along with Adweek Media, is part of The Nielsen Co.) to demonstrate the effectiveness of in-game ads for the scores of marketers not yet sold on the medium.

There are plenty of reasons for that skepticism. For the large part, in-game ads still amount to little more than virtual billboards, and a common complaint is they lack impact and interactivity. Then, there’s the measurement question. Unlike Web-based casual games in which marketers can execute campaigns much the same way they do any other online advertising—via banners, interstitials and the like—and then track their effectiveness, dynamic execution and measurement remain iffy.

“Dynamic ads are definitely not where everybody thought they would be at this point,” says Dario Raciti, group director and gaming leader at OMD. “I was never a proponent of signage alone for advertisers to get involved in games. A billboard is not going to do it. You have to engage with players.”

That sentiment is echoed by Brandon Berger, director of digital innovation at MDC Partners, who favors in-game product placement and advergames over allocating budgets to firms like Massive. Dynamic, he says, “hasn’t fulfilled the sexy part of what it was supposed to do. It’s not to say that it’s not the right destination, but the true power of videogames is engagement. That hasn’t been able to be tapped by dynamic ads.”

Another challenge is limited distribution. Most of the major in-game ad firms have focused on deals with PC-game producers that specialize in reaching hard-core gamers, versus the broader, console-based audience playing games via PlayStation, Xbox and the red-hot Nintendo Wii.

Dynamic purveyors seem “stuck in the PC world,” says Berger. “When you enter the TV-screen, living room experience, that has a very different value.”

Dynamic ads, at the moment, serve up a splintered audience, says Raciti. “It’s still very fragmented. There is no Sony, no Wii. What you are left with is a few PC titles. That’s kind of limiting, and there is not enough valuable inventory. Let’s face it. A lot of games on the PC platform don’t have a place for ads. You end up with second-tier games. That, to me, is not interesting.”

Still, Raciti and Berger agree that dynamic ads have potential, especially as part of a broad gamer-targeted media plan.

Matt Story, director of Play, a division of Denuo, also thinks dynamic ads can work for the right campaign. “It really comes down to brand preferences,” he says. “Brands can look at gaming as a media buy or a communications platform.”

While the future of dynamic ads remains uncertain, casual games—which range from PopCap Games’ Bejeweled to GameLab’s Diner Dash and can reach a far broader, female-skewing audience via the Web—are booming. Marketers laid out some $150 million on casual games last year, up 20 percent over 2005, per DFC Intelligence. A staggering 217 million consumers visited gaming sites in the month of May of this year alone, reports comScore. Paul Verna, senior analyst at eMarketer, forecasts ad spending for properties including Pogo.com, Yahoo Games and WildTangent will grow at a faster clip than dynamic business in the coming years.

“The console market is in a transition,” he says. “The extent to which games are connected to the Web is still a minority. Advertisers and agencies are still waiting for the console to evolve. Dynamic ads are in a bit of limbo. But with Web-based games, nobody has to wait. We expect very steep growth.”

Verna adds that alternative outlets for reaching gamers, including online gaming hubs and virtual worlds like Second Life, are stealing some of the spotlight from dynamic ads. “All of these other outlets are viable,” he says.

Still, many doubt that videogame advertising will grow as fast as some, including Massive, have predicted—even with players like Microsoft getting in the game.

“Microsoft is clearly not the marketing machine that the previous owners were,” says The Yankee Group’s Goodman. “It was hype that created unreal expectations. We all bought into that. When you set the bar so high, you have to deliver on that.”

Jay Sampson, Massive’s vp, sales for North America and Asia, acknowledges the industry has suffered from inflated expectations.

“Was there too much hype? Yes, absolutely,” he says. “The problem is, it takes time to get into the development cycles of these games. It takes time to get that integration done.”

Sampson adds that gaming ad firms had obvious motivations for talking up the space. “Even as with Massive pre-acquisition, these were companies that were trying to raise capital,” he says.

Double Fusion CEO Jonathan Epstein says the hype around videogames mirrors that of another medium that’s seen its share of ups and downs: “The same thing happened with the Internet. It’s a very typical pattern in a new market. Until you have a better track record, projections are made more on assumptions.”

Irrational exuberance aside, business is surging for Massive, according to Sampson. It now works with 60 game titles, up from 20 or so a year ago. Massive has landed marquee titles including Madden NFL 08 and Tiger Woods PGA Tour 08 (though only on PC and Xbox 360). And “the breadth of marketers has exploded,” Sampson adds, moving from mostly entertainment brands and autos to include consumer packaged-goods and fastfood spenders.

The latest research should prove useful in luring more of those blue-chip marketers, say insiders. “We’ve always recognized that one of the gateways of any new medium has to be good, solid, quantitative research that proves out the space,” says Justin Townsend, CEO of IGA Worldwide.

IGA recently launched an elaborate study on gaming-ad effectiveness in partnership with Nielsen Entertainment, game publishers EA and Activision, and Omnicom’s Organic and PHD. Says Townsend, “Media buyers are not going to commit high-six-figure or seven-figure deals and stick their necks out the window [without good research].”

Researchers have unearthed some good news. As Massive recently announced, Nielsen found that in-game ads boosted brand familiarity by a whopping 64 percent and brand recall by 41 percent.

Still, some say the usefulness of one-off research has its limits. “The reality is, you are not going to do a third-party study for every campaign,” says Dave Madden, evp at WildTangent, which distributes and sells ads within casual games on all Dell, HP and Toshiba PCs shipped in the U.S.

For in-game advertising to fulfill its promise, insiders say, it likely will need an assist from major players like Sony, Nintendo and Google. Nintendo has enjoyed roaring success with its casual-gamer-appealing Wii console but has yet to commit to in-game ads. Neither has Sony, producer of the phenomenally successful PlayStation. Landing an ad deal with either would be considered a major coup for one of the big three in-game ad firms.

Meanwhile, all eyeballs are on Google, which this year acquired Adscape, a startup dynamic ad firm with next to no customers.